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Introduction
Service tax assumed prime significance in the
Finance (No.2) Act, 2004 by way of increase in the rate and the tax base,
reduction of exemptions and achievement of an important milestone by introducing
cross utilization of credits available from duty/tax paid on goods allowing
an almost universal credit coverage. This article briefly deals with nuances
of service tax on the new services brought in the realm of service tax
by the Finance (No.2) Act, 2004 and also analyses the expanded scope of
some of the existing services.
- Listed below, are the services
introduced vide the Finance (No.2) Act, 2004 coming into effect from
September 10, 2004.– Airport Services
– Business Exhibition Services
– Construction services (commercial and industrial buildings or civil
structures)
– Forward contract services
– Intellectual property services (other than copyrights)
– Opinion poll services
– Outdoor caterer’s services
– Pandal or Shamiana services
– Survey and exploration of minerals
– * Transport of goods by road.
– Transport of goods by air.
– Travel agents (other than air and rail travel agents).
– Television and radio programme production services.
(* The levy on this service is now notified to come into effect
from January 1, 2005).
- The scope of the following existing taxable
services is expanded : ( with effect from September 10, 2004 )
| – |
Business
auxiliary service to include activities relating to production
of goods (not amounting to manufacture), procurement of inputs
or provision of service on behalf of client. |
| – |
Banking
& Other Financial services to include specified core banking/financial
services. The scope is also expanded to cover "any commercial
concern" providing any of the specified services. |
| – |
Commissioning
& Installation service to include erection service. |
| – |
Cable
operators to include Multi System Operators (MSOs). |
| – |
Stock
brokers to include sub-brokers . |
| - |
Tour
operators to include such package tour operators who organize
tours involving different modes of transport. |
- The ‘risk cover’ element in life insurance
policies is subject to service tax.
Given below, is an overview of all
the above services except the banking and other financial services
and business auxiliary services :-–
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The
sections quoted refer to the Chapter-V of the Finance Act,
1994; |
| – |
General
exemptions granted under the law vide Notifications 12/2003-ST,
21-2003-ST, 16/2002-ST and 4/2004-ST apply to all the services; |
| – |
In
respect of all the services introduced vide the Finance (No.2)
Act, 2004, the value of taxable service received prior to
10-9-2004 has been exempted vide Notifications 18/2004-ST
and 25/2004-ST. |
| – |
The
reference of the Government clarification made under each
service is of CBEC Circular F.No.B2/8/2004-TRU of 10-9-2004. |
- Airport Services
-
"Airport" has the meaning assigned to it in clause
(b) of section 2 of the Airports Authority of India Act, 1994 (55
of 1994) – [Section 65 (3C) ];
"Civil enclave" has the meaning assigned to it
in clause (i) of section 2 of the Airports Authority of India Act,
1994 (55 of 1994) – [Section 65(24A) ].
In turn, as per section 2(b) of the Airports Authority
of India Act, 1994 (AAIA).
"Airport means a landing and taking off area for
aircrafts, usually with runways and aircraft maintenance and passenger
facilities and includes aerodrome as defined in clause (2) of section
2 of the Aircraft Act, 1934.
According to section 2(i) of the AAIA " ‘civil
enclave’ means the area if any allotted at an airport belonging to
any armed force of the Union, for use by persons availing of any air
transport service from such airport or for the handling of baggage
or cargo by such service and includes land comprising of any building
and structure on such area"
"Taxable Service" means any service provided to
any person, by airport authority or any person authorized by it, in
an airport or civil enclave." – [Section 65(105)(zzm)]
In terms of the above, therefore, various services
provided at an airport or a civil enclave by the Airport Authority of
India (AAI) or a person authorized by AAI are taxable under this category.
A large variety of services like landing, terminal navigation charges,
packing and housing charges, route navigation facility charges, air
traffic and air safety services, ground services, passengers amenities
etc. are liable for service tax . However, when a part of airport or
civil enclave premises are rented/leased, the lease rentals so recovered
do not attract service tax as letting out is not in the nature of service
in terms of the Ministry’s clarificatory note. The same stand has been
taken by the revenue authorities in the case of port services also.
- Business Exhibition Services
- "Business Exhibition " means an exhibition,
-
(a) to market; or
(b) to promote; or
(c) to advertise; or
(d) to showcase,
any product or service, intended for
the growth in business of the producer or provider of such product or
service, as the case may be. [Section 65(19A)]
"Taxable Service means any service
provided to an exhibitor, by the organizer of a business exhibition,
in relation to business exhibition". – [Section 65(105)(zzo)]
In terms of the above provisions,
services provided by the organizer of any business exhibition in relation
to promoting, marketing, advertising or showcasing any product or service
are covered. Generally, trade fair/exhibition promoters or organizers
providing space/stall are covered by this service. Some time back, a
move was made by the department to levy service tax on these organizers
under the category of ‘event management service’. Thereafter, the government
issued a circular (Circular No.68/17/2003-ST of 28-11-2003 ) that organizations
of trade fairs or exhibition for providing space were not covered under
the said category. In another scenario, Delhi Tribunal, in case of "Indian
Trade Promotions Organizations vs. CCE 2004 (164) ELT 163 held that
renting premises to participants of trade fairs did not mean a ‘ceremony’
or a ‘function’ for the purpose of Mandap Keeper’s services. The Tribunal
in this case distinguished "business activity" from "an official, social
or business function" or say "business function" and therefore no service
tax was payable for renting out space for any business purpose under
the said category. Now, under the category of business exhibition service,
the renting of space/stalls for the business purpose is covered, whether
to market any product or service. In terms of the government’s clarificatory
circular, organizers of road shows, fashion shows, display show cases
kept in airports, railway stations, hotels etc, would also be covered
under the said levy. It further provides that generally products displayed
in shops/shopping centers for customers to view does not attract service
tax as there is no separate charge is attached to such display. However,
if a charge is recovered for a mere ‘display’, service tax is payable
under this service. In many practical cases, however, there may seem
a dilemma as to whether to treat a "service" under "advertising service"
or "business exhibition service" as there are overlapping areas. In
such cases, depending on the facts of the case, determination of appropriate
classification would have to be done based on provisions of section
65 A of the Act. Another issue is that of existence of "barter deals",
where value of a ‘taxable service’ may not be available in precise monetary
terms. In such cases also, depending on the facts of each case, valuation
of taxable service may have to do done.
- Constructions Services
"Construction service" means :
-
construction of new building
or civil structure or a part thereof; or
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repair, alteration or restoration
of, or similar service in relation to, building or civil structure,
which is-
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used, or to be used, primarily
for; or
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occupied, or to be occupied,
primarily with; or
-
engaged, or to be engaged, primarily
in, commerce or industry, or work intended for commerce or industry,
but does included road, airport railway, transport terminal, bride,
tunnel, long distance pipeline and dam – [Section 65(30a) ]
"Taxable Service" means any service
provided to any person, by a commercial concern, in relation to construction
service – [Section 65(105)(zzq)]
The examination of the provisions
indicates that all new commercial or industrial constructions as well
as repair, alteration or restoration work is covered by this category.
Even a partial or a part construction attracts the levy. However specific
exclusion is provided for the construction work of road, airport,
railway transport terminal, bridge, tunnel long distance pipeline
and dam. The term ‘repair, alteration, restoration and construction
or civil structure are not defined by the law or the clarificatary
notes of the Board. Generally, the builders or developers engage services
of civil contractors for the purpose of construction. Classically,
these contractors and not the estate developers are covered by this
service. Normally a construction presupposes brick and mortar work
in addition to the steel structure. However, the mortar may involve
cement or not. For instance, some industrial floorings are done using
chemicals without the use of cement. It can be looked upon as part
of the construction activity and if it is for the use or occupation
of commerce or industry, service tax is attracted. Residential constructions
have been kept out of the purview but the exclusion list being specific,
the test of taxability of any construction would have to be conducted
based on its use or occupation only. For instance, construction of
an academic institution may be regarded as non-commercial and construction
of a hospital is also regarded as non-commercial. However, if a corporate
hospital is constructed, the taxability may have to be decided based
on the facts of each case.
Considering, the composite nature
of civil contracts, where supply of materials forms a major part,
an option of an abatement of sixty seven percent has been provided
to neutralize the material component. (Refer Notification No.15/2004-ST).
In case of residential-cum commercial constructions, tax would be
leviable if such properly is treated as commercial under the local-municipal
laws according to the Government’s clarification.
- Forward Contract Services
"Forward contract" has the meaning
assigned to it in clause (c ) of section 2 of the Forward Contracts
(Regulation) Act, 1952 (74 of 1952); [section 65 (46a)]
According to the Forward Contracts
Regulation Act,1952 (FCRA), "forward contract means a contract for
the delivery of goods and which is not a ready delivery contract"
Taxable Service means any service
provided "to any person, by a member of a recognized association or
a registered association, in relation to a forward contract, [ Section
65(105)(zzy) ]
For commodities notified under
the FCRA, contracts can be entered into only though the members of
association, recognized or registered under the Act. Commodity exchanges
like National Commodity and Derivatives Exchange (NCDEX.), National
Multi-Commodity Exchange of India – (NMCE) or Multi Commodity Exchange,
Mumbai – (MCX) through their members provide services of trading business
in forward contracts. As per the legal provisions, ready delivery
contracts are not covered by the service tax provisions. Briefly stated,
the levy is on the brokerage/commission charged by the members for
deals of forward contracts carried out on behalf of their clients.
This category is akin to that of stock brokers. The stock brokers
may be members of National Stock Exchange (NSE) or the Bombay Stock
Exchange (BSE) in Mumbai. In this case, they are members of the NCDEX
or the like commodity exchange. In fact, number of stock brokers have
acquired membership of NCDEX to trade in commodities, NSE being one
of the promoters of the NCDEX.
- Intellectual Property Services
"Intellectual property right"
means any right to intangible property, namely trade marks, design,
patents or any other similar intangible property, under any law for
the time being in force, but does not include copyright; [section
65(55a)]
"Intellectual property service" means
–
-
transferring, whether permanently
or otherwise; or
-
permitting the use or enjoyment
of,
any intellectual property right;]
[section 65(55b)]
"Taxable service" means any service
provided to any person, by the holder of intellectual property right,
in relation to intellectual property service; [section 65 (105)( zzr)]
-
Intangible rights under any law
in force only are covered. Therefore patents, trade marks and
designs are covered as the rights attached thereto are governed
by specific law in such regard like Patents Act, 1970. Trade &
Merchandise Act,1958 & Designs Act, 1991. Copyrights are also
governed under the Copyright Act, 1957. However copyrights are
excluded from the definition specifically. The definition of IPR
service as such covers "permanent transfer" of such rights. However,
the Board’s note restricts the scope of definition by stating
that "a permanent transfer of IPR does not amount to rendering
of service". Allowing the right to use IPR attracts service tax.
Gross amount charged for the use attracts service tax. However
in cases where technology is imported and cess is paid under Research
and Development Cess Act,1986, cess so paid is deducted from the
total service tax payable.
It is pertinent to note here that
designs, drawings etc. which are intangible assets when supplied to
media (paper or diskettes) were treated as goods and attracted customs
duty in terms of the Supreme Court’s ruling in case of Associated
Cement Co. Ltd. vs. Commissioner of Customs – [2001-(128)-ELT-21-(S.C.)].
Similar stand has been taken in other judicial pronouncements. However
a different stand is taken in case of State of Uttar Pradesh vs.
UoI – [2004-(170)-ELT-385-(S.C.)] which ruled as "it is possible
an activity may be service for purpose of one Act and sale for purposes
of another Act". The Government, however has decided not to levy service
tax on permanent transfers. However, allowing the use of IPRs would
be subject to lease tax as well as service tax until the outcome of
pending cases of review petitions or appeals before the Supreme Court
on the subject matter.
- Opinion Poll Services
"Opinion Poll" means any person designed
to secure information on public opinion regarding social, economic,
political or other issues; [section 65 (75a)]
"Opinion poll agency" means any person
engaged in providing any service in relation to opinion poll" [section
65 (75b)]
"Taxable service" means any service
provided to any person, by an opinion poll agency, in relation to
opinion poll; [section 65 (105) (zzs)]
In terms of the above provisions,
opinion poll agencies i.e. any persons providing services in relations
to opinion poll are taxable under this category. The polls may be
conducted to gather information on public opinion on any social, economic
political or other issues. These agencies decide as to target groups,
preparation of questionnaires, taking interviews of target groups,
collecting the information gathered, analyze them & arrive at
conclusion and finally prepare reports, statistics etc. The gross
fees/consideration charged to a client by such agencies is the value
of taxable service. Market Research Agencies also provide analogical
services in relation to products, services or utilities. This category
is being taxed since 16th October, 1998. The distinction between the
two is that opinion poll relates to social, socio-economic, economic
or political issues and market research agencies conduct surveys &
research generally for the launch of specific commercial product or
a service. In terms of the Government’s clarificatory circular, a
survey conducted for price rise, people’s reaction to a certain government
policy etc. would be termed opinion poll service.
- Outdoor Caterer’s Service
"Outdoor caterer" means a caterer
engaged in providing services in connection with catering at a place
other than his own; [section 65 (76a)]
"Caterer" means any person who supplies,
either directly or indirectly, any food, edible preparations, alcoholic
or non-alcoholic beverages or crockery and similar articles or accoutrements
for any purpose or occasion; [section 65 (24)]
"Taxable service" means any service
provided to client, by an outdoor caterer; [section 65 (105) (zzt)]
This service has now been reintroduced
after it was withdrawn on June, 02 1998. These services were taxable
between 1-8-1997 and 1-6-1998. The constitutional validity of service
tax on mandap keeper’s services was challenged in the case of Tamilnadu
Kalyan Mandapan Owners Association vs. UOI 2001 (133)ELT 36 (Mad)
and the Hon. High Court held that the levy was neither arbitrary
nor discriminatory. Further, the Supreme Court upheld High Court’s
decision [Refer Tamilnadu Kalyan Mandapam Association vs. UOI [(2004
(167) ELT 3 (S.C.)] and observed "outdoor catering has an element
of personalized service provided to the customer. Clearly, the service
element is more weighty, visible and predominant in the case of outdoor
catering. It cannot be considered as a case of sale of food and drink
as in restaurant." In terms of the judicial pronouncements, trade
notices issued under the earlier dispensation in 1997 and the legal
provisions, service tax is payable on outdoor catering services although
the element of food is a substantial component. To neutralize this,
an abatement of 50% has been provided (Refer Notification No.20/2004-ST).
Under the earlier dispensation, clarification was also provided that
catering services provided in a factory, office or similar establishment
by a caterer based within such premises also were covered. Similarly
in-flight catering services provided to airlines also attract the
levy. In terms of the said clarification, the choice of menu, price,
place and the time of service etc. is being negotiated with the client
and is decided as per the requirement of the client and this itself
accounts for the service (Refer CBEC Circular F. No.B43/8/97-TRU of
25/7 –1997). However, the Government has exempted catering service
provided in academic institutions, medical establishments and on railway
trains (Refer Notification – 19 & 21/2004 ST of 10-9-2004). However,
unlike under earlier dispension, no additional abatement is provided
to catering services in office, factory or similar establishments.
Earlier, 80% abatement was provided in this case which in the writer’s
view necessary as the food is generally supplied at a low rate in
factories or industrial establishments . If may be argued that option
of benefit of Notification No.12/2003 ST is always possible. However,
segregation is often not possible and the provisions of law of works
contracts tax also cannot be overlooked. In terms of the clarification
issued by the Government, it is to be noted that hotels, restaurants,
providing home delivery services, where no specific charge is levied
for other than that of the cost of food, no service tax is leviable
- Pandal or Shamiana Contractor’s Services
"Pandal or shamiana" means a place
specifically prepared or engaged for organizing an official, social
or business function; [section 65 (77a)]
"pandal or shamiana contractor" means
a person engaged in providing any service, either directly or indirectly,
in connection with the preparation, arrangement, erection or decoration
of a pandal or shamiana and includes the supply of furniture, fixtures,
lights and lighting fittings, floor coverings and other articles for
use therein;[section 65 (77b)]
‘Taxable Service" means any service
provided to a client, by a pandal or shamiana contractor in relation
to pandal or shamiana in any manner and also include the services,
if any, rendered as a caterer; [section 65 (105)(zzw)]
This service, like the outdoor
caterer’s service, was declared exempt from 2nd June, 1998 and was
taxable between 1-8-1997 and 1-6-1998 and has now been reintroduced.
The provisions remain the same as under the earlier dispensa-tion.
Accordingly, all services provided by pandal/shamiana contractors
in connection with preparation, arrangement erection/decoration of
shamiana or a pandal at a place for organizing official, social or
business function is covered. The term, "official, social of business
functions" is the same as used in the services of mandap keepers.
Therefore, pertinent point is that shamiana service for organizing
official, social or business function only is covered. The term ‘function’
here denotes an occasion and not an activity. Therefore shamiana services
provided for business activity or purpose would not get attracted
to service tax (Refer to India Trade Promotion Organization vs.
CCE 2004 (164) ELT 163 (Del CESTAT). When a pandal or shamiana
contractor has also provided catering services along with the shamiana
services, abatement of 30% is provided (Refer Notification 22/2004-ST).
The clarification provided by the Government provides that pandal/shamiana
services provided for pure religious ceremonies or congregation like
worship of Gods/Goddesses are not liable for service tax. However
no separate notification exists to exempt the same.
- Survey and exploration of minerals
"Survey and exploration of mineral"
means geological, geophysical or other prospecting, surface or sub-surface
surveying or map making service, in relation to location or exploration
of deposits of minerals, oil or gas; [section 65 (104a)]
‘Taxable Service" means any service
provided to a customer, by any person, in relation to survey and exploration
of mineral; [section 65 (105) (zzv)]
Perusal of the legal provisions indicates
that all services in connection with geological, geophysical or other
prospecting, surveying or map making etc. for locating or exploration
of oil, mineral or gas deposits are covered here. In terms of the
clarification issued by the Government in this regard, activities
like seismic survey, collection/processing, interpretation of data
and drilling or testing in relation to survey and exploration would
fall within the ambit of taxable service. However the activity of
actual extraction after the supply/exploration is complete and transport,
refining, processing or production of extracted products are outside
the ambit of service tax. Incidentally, the definition of the category
refers to mineral, oil or gas but the definition of taxable service
refers only to the term "mineral"
-
Transport of Goods by Air
"Aircraft" has the meaning assigned
to it in clause (1) of section 2 of the Aircraft Act, 1932 (22 of
1934); [ Section 65 (3a) ]
"Aircraft operator" means any commercial
concern which provides the service of transport of goods by aircraft;
[Section 65(3b)]
"Taxable service means any service
provided to any person, by an aircraft operator, in relation to transport
of goods by aircraft; [Section 65 (105)(zzn)]
According to The Aircraft Act, 1934
"aircraft means any machine which can derive support in the atmosphere
from reactions of the air (other than reactions of the oil against
the earth’s surface) and includes balloons whether fixed or free,
airships, hikes, gliders and flying machines;
Perusal of the legal provisions indicates
that when the goods are transported by aircraft, the aircraft operators
i.e. any commercial concerns like airlines engaged in the transportation
of goods are liable for service tax. Even helicopter transporting
goods get covered. Now, in terms of the clarification provided by
the Government, in addition to aircraft charges, all charges collected
towards storing, handling, loading/unloading done in relation to air
transportation of cargo
by an airlines are also chargeable to service tax.
A week after the introduction
this service, a Notification (No.28/2004 ST of 17-9-2004) was issued
to exempt the service in relation to export cargo by aircraft. Accordingly,
only import cargo and domestic cargo are subject to service tax. Technically,
for a seven day period from 10th to 17th September 2004, transportation
services in relation to export cargo also attracted the levy. It is
pertinent note here that under "cargo handling services", cargo handling
in relation to export is out of the purview of the definition. In
line with this, the Government had provided in the clarificatory note
that handling charges incurred on domestic movement for the purpose
of export would not attract service tax. Similar explanation is required
for this service also, but so far nothing has come from the Government
in this regard. Another issue stirring in the minds of a class of
persons is that whether the expression, "a commercial concern like
an airlines", includes IATA cargo agents charging air freight amount
to their customer liable under the said category. Similar ambiguity
exists for the freight in relation to import where the consignments
arrive on ‘pre-paid’ basis and later recovered by the agents from
importers. A suitable clarification from the government may dispel
doubts as well as avoid litigation.
- Transport of Goods by road
"Goods Carriage" has the meaning
assigned to it in clause (14) of section 2 of the Motor Vehicles Act,
1988 (59 of 1988); – [Section 65(50a)]
"Goods Transport Agency" means any
commercial concern which provides services in relation to transport
of goods by road and issues consignment note, by whatever name called;
– [Section 65(50b)]
"Taxable Service" means any service
provided to a customer, by a goods transport agency, in relation to
transport of goods by road in a goods carriage; – Section 65(105)(zzp)
Goods carriage as per Section 2(14)
of the Motor Vehicles Act, 1988 means "any motor vehicle constructed
or adapted for use solely for the carriage of goods any motor vehicle
not so constructed or adapted when used for carriage of goods."
As it is known the Government had
kept the levy on this service in abeyance and Bhardwaj Committee was
appointed to recommend modalities for the implementation of the levy
of service tax on the said services. Now four Notifications viz. 32
to 35/2004 have been issued on December 3, 2004 to come into effect
on January 1, 2005. Service tax is payable on the 25% of the gross
amount charged to customer (Refer Notification 32/2004). Taxable service
provided by goods transport agency – [GTA] in relation to transport
of fruits, vegetables, eggs or milk by road in a goods carriage are
exempt vide Notification No.33/2004. Further, when the gross amount
charged by the GTA for the entire consignment by the goods carriage
does not exceed Rs.1,500 it is exempt. Similarly there is no service
tax payable when individual consignment transported does not exceed
Rs.750 - (Refer Notification No.34/2004). This sector again has succeeded
with the Government in getting their way in shifting the levy to the
user of services in most of the cases. Vide Notification 35/2004,
Rule 2(1) of the Service Tax Rules has been amended and sub-clause
(v) is inserted in clause (d) to provide that, the following recipients
of the services of transport agencies are liable to pay service
tax, whether such persons pay or are liable to pay freight as consignor
or consignee :–
-
any factory registered under
or governed by the Factories Act, 1948;
-
any company established by or
under the Companies Act, 1956;
-
any corporation established by
or under any law;
-
any society registered under
the Societies Registration Act, 1860 or under any law corresponding
to that Act in force in any part of India;
-
any co-operative society established
by or under any law;
-
any dealer of excisable goods,
who is registered under the Central Excise Act, 1944 of the rules
made thereunder; or
-
any body corporate established,
or a partnership firm registered, by or under any law, any person
who pays or is liable to pay freight either himself or through
his agent for the transportation of such goods by road in a goods
carriage.
Further, Rule 4b is inserted in the
Service Tax Rules to provide that all the GTAs except those which
are exempt in terms of the above notification have to mandatorily
issue Consignment Note with the required details about the consignment.
-
Travel
Agents (other than air and rail travel agents)
"Travel agent"
means any person engaged in providing any service connected with booking
of passage for travel, but does not include air travel agent and rail
travel agent; [Section 65 (115a)]
"Taxable
service" means any service provided to a customer by a travel agent,
in relation to the booking of passage for travel; [Section 65 (105)(zzx)]
In terms
of the above provisions, persons providing service in connection with
booking of passage for travel by modes other than by rail or air are
covered. Services by travel agents or tour agents for services of
any nature other than the above are not covered here. A separate category
of "tour operator" already exists and the provisions in relation to
that service also are modified. simultaneously. The consideration/commission
received for travel by bus or ship boat etc. is liable to service
tax under this category.
- Television/Radio Programme Production Services
"Programme" means any audio or visual
matter, live or recorded, which is intended to be disseminated by
transmission of electro-magnetic waves through space or through cables
intended to be received by the general public either directly or indirectly
through the medium of relay stations; [Section 65 (86a)]
"programme producer" means a commercial
concern which produces a programme on behalf of another person; [Section
65 (86b)]
"Taxable service" means any service
provided to any person, by a programme producer, in relation to programme;
[Section 65 (105)(zzu)]
All video and audio programme productions,
whether in the form of service, talk-shows, new programmes whether
live or recorded produced by a commercial programme producer and meant
for telecasting/radio transmission is under the taxable service. Earlier,
the Government vide Circular No.78/08/2004 ST of 23-3-2004 had clarified
that Television serial production is not taxable under "video tape
production service". With the introduction of this service, these
services have become taxable. In terms of the Government’s clarification,
even the cases, whether programme is sold to the broadcaster, it is
exigible to service tax. Now, this stand appears contrary to the stand
of the Government vis-à-vis the service of intellectual property service.
Such intention does not emerge at least from the legal provisions
provided above and the remark of the Government in the circular enhancing
the scope surely calls for litigation.
-
The scope of the following taxable
service is expanded by the Finance (No. 2) Act, 2004. (It may be snoted
that statutory provisions are not reproduced here)
-
Erection, Commissioning
or installation Services
The activity of erection i.e.
civil works is now covered under the erstwhile category of "commissioning
or installation service" and the old definition is replaced by
the new definition provided in sub-clause (139 a) of section 65.
Earlier stand taken by the Government vide Circular 49/11/2002-ST
of 18-12-2002 was modified by the Government vide Circular No.79/9/2004
of 13-5-2004 and clarified that erection, installation and commissioning
services are not covered under consulting engineer’s services.
Now all these services are taxed under this specific category.
The EPC contracts or other turnkey contracts in most cases have
component of "erection" or civil works. This was not taxed specifically
under the "commissioning and installation service". This year,
the category of ‘construction service’ has been introduced and
therefore to provide level-playing, "construction activity" under
composite contracts are covered as "erection". The abatement of
67% however remains constant. Another issue is raised in the context
of this service by many that whether the ratio of Daelim Industries
Co. vs. CCE, Vadodara (2003) 155 ELT 457 (Tri-Del) should
apply to turnkey contracts of erection commissioning and installation
also. This is now affirmed by the Supreme Court as the petition
for special leave to Appeal has been dismissed. [2004 170 ELT
– A18]. In this case it was held that "works contract cannot be
vivisected and part of it be made subject to tax under consulting
engagement service". It does not seem appropriate to hold such
a view according to the writer for various reasons. Erection installation
or commissioning service is introduced as a specific separate
category of service. In case of Daelim, the designing etc. was
only incidental to the execution of works contract. Moreover,
in view of decisions of Supreme Court in cases like Tamilnadu
Kalyan Mandap Association vs. UOI 2004 (167) ELT 3 (SC) and
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